TD Securities: Buying Exhaustion In Sight

TD Securities write “price action in gold following the Israel-Hamas war is creating the illusion of strong apparent demand. Our advanced positioning analytics instead suggest the ensuing flows have more likely been tied to an epic positioning squeeze, which may now be showing signs of exhaustion even though embedded risk premiums do not appear extreme.”

• “CTA short covering totalled nearly 80% of the cohort's position in a single session on October 13, bringing month-to-date purchases north of 20% of their max size. Discretionary funds had also notably reacquired their net shorts in gold amid the melt-up in yields, which likely wrong-footed this cohort to the tune of 60k lots in Comex.”
• “Meanwhile, ETF holdings continue to liquidate at a fast clip, likely due to elevated carry costs, and Shanghai traders have continued to liquidate their recently acquired length.”
• “Our positioning analytics suggest the pain trade for gold shorts could still extend a touch further, but we now estimate that prices will need to break well above the $2000/oz range to spark large-scale algorithmic long acquisitions.”
• “Barring a severe escalation, this points to buying exhaustion, opening the door to potential algo selling below the $1945/oz mark.”
• “Still, more meaningful selling activity from other cohorts will be required before algos reacquire a chunk of their shorts south of $1875/oz, suggesting prices may not easily recapture recent lows.”